• NFL Joint Licensing Is Subject to Antitrust Scrutiny
  • June 1, 2010 | Authors: Daniel N. Anziska; Barry J. Brett; Bob Edwards; Merril Hirsh; James A. Lamberth
  • Law Firms: Troutman Sanders LLP - New York Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office
  • For the first time in 18 years, the Supreme Court has ruled for the plaintiffs in an antitrust case.  In American Needle, Inc. v. National Football League, No. 08-661 (May 24, 2010), the Supreme Court unanimously reversed a decision by the United States Court of Appeals for the Seventh Circuit. The Supreme Court ruled that National Football League (NFL) teams are not a single enterprise for all purposes and are capable of engaging in a “contract, combination 111, or conspiracy” that violates Section 1 of the Sherman Act, 15 U.S.C. §1. The Court directed that the NFL teams’ joint licensing of their intellectual property rights through a company formed for that purpose be subject to the Rule of Reason, the test typically applied to joint venture arrangements that involve a genuine sharing of risk.

    In 1963, all of the NFL teams formed National Football League Properties (NFLP) to develop, license and market their intellectual property. In 2000, the teams voted to authorize NFLP to grant exclusive licenses. NFLP granted an exclusive headware license to Reebok, and declined to renew American Needle’s nonexclusive license to make hats with team logos. American Needle then sued, claiming that the agreements among the NFL, its teams, NFLP and Reebok violated §§ 1 and 2 of the Sherman Act.

    The trial court found that, in exploiting intellectual property rights, the NFL teams “have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.” The Seventh Circuit affirmed on the grounds that football can be carried out only jointly, and that “only one source of economic power controls the promotion of NFL football.” The Supreme Court, reversed, finding that neither of these observations exempted the arrangement from scrutiny as a “contract, combination or conspiracy” under §1 of the Sherman Act.

    On behalf of a unanimous court, Justice Stevens wrote that the NFL teams “do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action. Each of the teams is a substantial, independently owned, and independently managed business,” that “compete[s] in the market for intellectual property.” Cooperation may be necessary in order to have NFL football, the Court noted. But cooperation is still concerted activity and football teams are not “immune” from potential antitrust liability. Moreover, “[a]greements made within a firm can constitute concerted action covered by §1 when the parties to the agreement act on interests separate from those of the firm itself, and the intrafirm agreements may simply be a formalistic shell for ongoing concerted action.”

    The fact that American Needle obtained a reversal does not mean that it will win its lawsuit. The NFL teams’ conduct and that of the NFLP will be assessed under the Rule of Reason to determine whether any potential anticompetitive effects in the exclusive license agreement outweigh any efficiencies that result from the arrangement. In fact, the Court suggested that, where agreement is necessary to market a product at all, the “Rule of Reason may not require a detailed analysis” and “can sometimes be applied in the twinkling of an eye.” The Court left undisturbed its prior holding in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 762 (1984), that a parent corporation is legally incapable of conspiracy with its wholly-owned subsidiary. The Court did not use this decision as an occasion dramatically to revise or to clarify joint venture law. 

    Nevertheless, much of what the Court did say may leave openings for future litigation. In Texaco, Inc. v. Dagher, 547 U.S. 1 (2006), the Court ruled that a joint venture between competitors could not be found liable for setting prices as part of the joint venture. In American Needle, the Court only briefly mentions Dagher and holds that a joint venture and those who form it may face liability when those who form the joint venture continue to operate as independent actors and take action that limits what would otherwise be competition among them.

    It may take some time for lower courts to draw the line between permissible conduct by a joint venture and action on “interests separate from the firm itself.”